Archives

Categories

Meta

8/19/2018

I am going to ask my friends to aggregate all of the glossary terms into a separate page, since some of you are interested in the multi-disciplinary requirements of being a pharmaceutical investor. Could be a good self-quiz.

Biopharma/Investing
—————————-
CERC looks like a great stock and company. The people, investors, assets and strategy involved in the company are exceptional. They’re cutting deals at great prices–reminiscent of some of my early deals at Retrophin.

I still like GBT and old favorites like GILD ALXN REGN and the hemophilia stocks SGMO QURE ONCE BMRN ALNY RARE. PTCT has done so well but still has more room I think. The ACAD short is probably over. NKTR should eventually go to zero as their IL-2 drug is, well, IL-2. My favorite short is now BGNE.

Poor Pabrai, Carlisle and all of the similar folks in that self-deluded “circle”. I think there is a “value investing” community of small funds & moonlighting stay-at-home Buffett wannabees that think Graham & Dodd still works. Why doesn’t Buffett do it anymore? Why are all of the “value” funds being obliterated? The world has moved on from “buying low EV/EBITDA”. That stopped working like 30 years ago. You’re buying beta and patting yourself on the back. I hate to mock those beneath me, it feels like beating up on a patient with intellectual disability, but consider it a service to the hopefully able-minded. If your Sharpe ratio isn’t above 1, stop until you figure out why. If your drawdowns are enormous, stop and figure out why. If your beta is enormous, stop and figure out why. Investing isn’t easy. There’s no “magic formula” or “little book”. Point out someone who has gotten really rich doing this, and if there is some random moron who has, I can point out the fallacy and why they actually did well (accidental beta is usually the reason). Value companies, yes. Buy the cheap ones, yeah. Short the expensive ones, for sure. But that’s not simple. You can’t do that with “screening”. It’s enormously hard work that requires intense insight, preparation, training and exhaustive application. No shortcuts.

You might wonder what Wall Street books I actually like. One I enjoyed and read while at the MDC was “The Physics of Wall Street”. Another would be “Snowball” by Schroeder. I don’t recommend “Flash Boys”, which I felt was a rather misleading and incomplete look into high-frequency trading, or the two books I’ve panned here. I don’t ready many books on investing or business, but I certainly get these books unsolicited and read them when I have time. I read “Four”, which I wouldn’t recommend. Alibaba: The House that Jack Built was okay. Definitely didn’t help me to understand a fairly instructable guy. I got deliveries of “Principles”, “Shoe Dog”, “Barbarians at the Gate”, “Market Wizards” and a dozen more, but didn’t have time and left them behind at MDC.

Interview Questions – Part 2
———————————-
Getting to know a personality is the trickiest part of the HR process. It’s relatively easy to measure aptitude, confidence, analytical approach, etc. It’s hard to know if someone is motivated, psychotic, greedy, loyal, etc. You want people that eat, sleep and breathe their field. In this case, people that love pharmaceuticals or investing (or both) so much, they’d do it for free. A good sign of that comes from the person’s history and why that got into the field. Tracing their life history helps. I am wary of people who have a very active social life, lots of interesting hobbies and other distractions. Work-life balance is great and necessary for well-adjusted behavior. However, I’d rather have the person obsessed with their field. A little unhealthy. The person who reads that last paper in AJHG at 11:30pm on a Friday is more likely to be useful to the company than anyone else.

With respect to our within-group analysis, any old investigational drug can have a meaningful reduction in symptoms from baseline, but only an investigational drug that can do that better than placebo is a real drug candidate 🙂

Mechanisms and clinical activity of an EGFR and HER2 exon 20-selective kinase inhibitor in non-small cell lung cancer. Robichaux et al. Nature Medicine 2018.
A tremendous end-to-end (“translational”) series of experiments starting with exon 20 mutation modeling , moving to cell lines and finally robust human responses. How it should be done. One worry is afatinib looks potent enough to compete with poziotinib. Poziotinib US rights are owned by Spectrum. The compound was created by Hanmi (I think), showing us sourcing molecules from the Asia region is always worth looking at.

Extending a systems model of the APP pathway: separation of beta- and gamma-secretase sequential cleavage steps of APP. van Maanen et al. JPET 2018.
JPET is usually a great journal but when it gets into systems biology and PK-PD modeling, I think there is more hand-waving and voodoo than real science. Take for instance, this paper. All the fancy differential equations in the world don’t explain the empirical phenomena accurately if we’re testing the wrong media and have a poor understanding of the PD. The “GSI” used here is around 1uM, not exactly potent, and we learned from the recent Shionogi paper I reviewed that a lot of GSIs aren’t really GSIs and beta-amyloid may be sequestered intracellularly. So here, the investigators (including Merck & Co researchers), took a brain port straight from the cisterna magna, but I’m not sure that is the right call either. So you have this fancy PK-PD model but it’s all “GIGO”, another important acronym 🙂

Enzalutamide in Men with Nonmetastatic, Castration-Resistant Prostate Cancer. Hussain et al. NEJM;38:2465-74.
The “PROSPER” study had predictably great results for Xtandi, HR=0.29(!). Revenue for Zytiga (abiraterone) is incredible. I have to dig up Astellas financials to see were Xtandi is, I think somewhat behind. Will be interesting to see how the new J&J drug from their Aragon deal (Erleada/apalutamide) does. But no mistaking that HRPC is getting more and more manageable, which is resulting in an even bigger patient pool. At some point in the future, more men over a certain age (perhaps 80) will have prostate cancer than not.

Progress in Nonmetastatic Prostate Cancer. Matthew R Smith. NEJM 2018;376;26:2531-2532.
There won’t be any way to test new drugs in this illness. Just takes too long. Maybe move to PSA as an endpoint?

Inhaled Corticosteroids and LABAs–Removal of the FDA’s Boxed Warning. Seymour et al. NEJM 2018;376;26:2461-2463.
FDA eats crow. The studies they asked for didn’t even answer the right question. I bet a lot of people actually suffered for this mistake. Having said that, you can never be too careful in their shoes.

From my very brief study of CERC they are using revenue from their acquisition of TRx pharmaceuticals as well as their purchase of Karbinal ER, Cefaclor, flexichamber and AcipHex to fund three drugs for FDA approval (CERC-301, CERC-611, CERC-406).

Too volatile to trade and or short. But yea loosing this much market cap will be really harsh. Still carry a lot of market cap. so there will be consequences and ramifications to such a significant loss. every dollar counts. US dollars.

On Sharpe Ratio: Standard Deviation increases with the square root unit of time (Brownian Motion). This will have a lowering effect on Sharpe as N approaches infinity. It is also important to distinguish between upside and downside variance, which sharpe fails to do. Hence the potential requirement to limit profitable standard deviation to fit the model.

In a positively biased asymmetrical return distribution the Sharpe will tell a misleading story.

Biotech appears tough. Best stock REGN just hit multi year lows 3 months ago. Maybe GBT will have a great selling drug. But maybe not. Interesting to see if it gets bought and or how the drug will do on the market.